ORANGEPL RS □ - restated POLISH FINANCIAL SUPERVISION AUTHORITY Consolidated annual report RS for the year 2014 (year) (according to par. 82 s. 2 of the Decree of Minister of Finance dated 19 February 2009 - Journal of Laws No. 33, item 259, with amendments) for the issuers in sectors of production, construction, trade or services for the year 2014, i.e. from 1 January 2014 to 31 December 2014 including, consolidated financial statements prepared under: International Financial Reporting Standards in currency: PLN date of issuance: 12 February 2015 ORANGE POLSKA SA ........................................................................................................................................................................................................................................... (full name of issuer) ORANGEPL Telecommunication (tel) ..................................................................................... .............................................................................................................. (abbreviated name of the issuer) (classification according to WSE / sector) 02-326 Warsaw ......... ................................................ ................................................................................................................................................................ (post code) (location) Al. Jerozolimskie 160 .......................................................................................................................... ................................................................. (street) (number) 22 527 23 23 22 527 23 41 .......................................................................................... ............................................................................... (telephone) (fax) [email protected] www.orange.pl ........................................................................................................… SA-Q I/2005 ............................................................................... (e-mail) (www) . (quarter/year) 526-02-50-995 012100784 ........................................................................................ ................................................................................. (NIP) (REGON) Deloitte Polska Sp. z o.o. Sp. k. (auditor) PLN ‘000 EUR ‘000 SELECTED FINANCIAL DATA year / 2014 year / 2013 year / 2014 year / 2013 I. Revenue 12 212 000 12 923 000 2 915 045 3 068 867 II. Operating income 986 000 788 000 235 362 187 129 III. Profit before income tax 581 000 310 000 138 687 73 617 IV. Consolidated net income 535 000 294 000 127 706 69 817 V. Net income attributable to owners of Orange Polska S.A. 535 000 294 000 127 706 69 817 VI. Earnings per share (in PLN/EUR) (basic and diluted) 0.41 0.22 0.10 0.05 VII. Weighted average number of shares (in millions) (basic and diluted) 1 312 1 312 1 312 1 312 VIII. Total comprehensive income 423 000 329 000 100 972 78 129 IX. Total comprehensive income attributable to owners of Orange Polska S.A. 423 000 329 000 100 972 78 129 X. Net cash provided by operating activities 2 753 000 3 292 000 657 150 781 762 XI. Net cash used in investing activities (1 745 000) (2 166 000) (416 537) (514 367) XII. Net cash used in financing activities (965 000) (1 324 000) (230 349) (314 415) XIII. Total net change in cash and cash equivalents 50 000 (208 000) 11 935 (49 394) Balance as at Balance as at Balance as at Balance as at 31/12/2014 31/12/2013 31/12/2014 31/12/2013 XIV. Total current assets 2 078 000 1 852 000 487 530 446 566 XV. Total non-current assets 20 026 000 20 725 000 4 698 402 4 997 348 XVI. Assets held for sale - 225 000 - 54 253 XVII. Total assets 22 104 000 22 802 000 5 185 932 5 498 167 XVIII. Total current liabilities 4 709 000 7 333 000 1 104 802 1 768 181 XIX. Total non-current liabilities 4 997 000 2 800 000 1 172 372 675 154 XX. Total equity 12 398 000 12 631 000 2 908 758 3 045 669 XXI. Equity attributable to owners of Orange Polska S.A. 12 396 000 12 629 000 2 908 289 3 045 187 XXII. Share capital 3 937 000 3 937 000 923 680 949 315 XXIII. Liabilities related to assets held for sale - 38 000 - 9 163 Polish Financial Supervision Authority 1 Dear Shareholders, 2014 was another year of progress for Orange Polska on all fronts: commercial, operational and financial. Despite numerous challenges and a persistently tough competitive market , we achieved the majority of our objectives. Deregulation improves prospects for fixed broadband market in Poland In October the Polish regulator approved partial deregulation of the fixed broadband market, a decision which affects almost 30% of all Polish households including those in major cities like Warsaw, Katowice, Lodz and Wroclaw. This was an important development for Orange Polska as it means greater price flexibility on the retail market and the introduction of commercial terms of cooperation on the wholesale market. We reacted immediately, launching new, more attractive offers in the deregulated areas. The recent deregulation has reinforced our decision to make significant investments in fibre technology in 2015. Significant quality improvements to mobile networks In September, after two and a half years of work, we completed our mobile network modernisation project. As a result, 3G network coverage for Orange Polska customers now extends to close to 100% of the population (compared to 63% before the project started), and 95% of Poland’s geographical area (up from a mere 12%). With the benefit of our strategic network-sharing partnership with T- Mobile, the project has already created important savings in terms of operating expenses and allowed us to avoid significant capital expenditure. Our 4G LTE network construction, which started in Q3 2013, covered 61% of the population by the end of 2014. 4G LTE substantially improves customer experience and is the key growth lever for data in mobile services. We have more than 600 thousand LTE users and our 4G network already carries close to 20% of Orange Polska’s mobile data traffic. We intend to continue to invest in this technology, and to that end we are taking part in the ongoing spectrum auction of 800MHz and 2600MHz frequencies. Good commercial momentum continues In last year’s letter I called 2013 a year of commercial progress. I am happy to say than in 2014 we maintained our good commercial momentum, especially in post-paid mobile services. Our statistics improved both in terms of absolute numbers and relative to our competitors. The number of customers who transferred to Orange Polska totalled 400 thousand, which corresponded to a market share in ‘ports-in’ of 26% (up from 21% in 2013). We increased our post-paid subscriber base by more than 6% in 2014. Post-paid services have become significantly more affordable for customers, encouraging customers to migrate to this segment from pre-paid in greater numbers during 2014. The growing popularity of mobile broadband and our second mobile brand, nju.mobile, also contributed to this success. Despite a particularly tough market environment in the business segment we managed to grow the number of voice business customers in this area for the first time since 2010. In 2014, we continued to successfully expand our convergent offer, Orange Open, combining mobile and fixed line products. Its customer base grew by nearly 90% to 539 thousand. In fixed broadband we continue to see growing demand for higher speeds: uptake of our super-fast VHBB services grew 150%, accounting for 8% of all Orange Polska’s DSL customers by the end of the year. Financial performance in line with objectives I am pleased to report that Orange Polska’s financial performance in 2014 ended in line with our objectives despite the ongoing pressure on our revenues. Thanks to our persistent focus on financial discipline, we were able to generate significant cost savings and keep capital expenditure well below the previous year’s level. Savings from sustainable cost optimisation measures amounted to PLN 307 million - much higher than in 2013. I would like to stress the diverse nature of these cost savings, close to 60% of which came from sources other than labour. On that front, headcount restructuring progressed as planned, in line with the social agreement we signed in December 2013. Lower revenue decline combined with cost savings allowed us to slightly improve the restated EBITDA margin to 32.1%, up from 31.6% in 2013. Our capex (excluding spectrum fees) fell by 7%, due to completion of the network modernisation project. As a result, we managed to slightly grow our organic cash flow to PLN 1,149 million, meeting our objective of at least repeating the result of 2013. We reduced our net debt by close to PLN 400 million and preserved a sound financial structure, with net debt at 1.1 times EBITDA (unchanged from the previous year) and net gearing at 25% (reduced from 26% in 2013). New initiatives to complement our service portfolio In 2014 we introduced two new commercial initiatives: Orange Finanse and Orange Energia. These products – an online banking platform and an energy retail platform - complement our telecom services, and are designed to improve customer loyalty. As more and more of our customers rely on their smartphones as all-purpose life management devices, we believe these complementary products are a natural extension to our service portfolio. The initial response to Orange Finanse has been very promising, with 47 thousand customers signing up in the first four months. Top priorities